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With Credit Card Interest Rates Sky-High and Millions of Brazilians in Debt, the Installment Plan Revives at Major Retailers, Allowing Sales of Electronics and Furniture to Those without Limits, Bypassing Traditional Banks and Becoming an Important Financial Revenue Source for the National Retail Sector Amidst a Consumption Crisis.
The old store installment plan is making a comeback at the center of retail strategies, turbocharged by technology, after losing ground to credit cards between 2015 and 2020. With the basic interest rate currently at 15% per year and rising delinquency, which closed October at 6.7% of loans with free resources, the 72.96 million consumers in debt in November are once again seeing the installment plan as their only access to credit.
Casas Bahia, Magazine Luiza, Grupo Mercado Móveis, and Lojas Torra are reactivating or expanding their own installment plans, financed with resources from the retail sector, to bypass the strictness of banks and unlock sales of durable goods. With average interest rates of 29.9% per year on the installment plan compared to 439.78% on credit cards in October, these retailers are transforming credit into a commercial and financial weapon at the same time.
Sky-High Interest Rates and Overdrawn Limits Push Consumers Back to Installments
After the boom of credit cards between 2015 and 2020, driven by the expansion of fintechs, retail chains began to lose the market share of sales that was previously dominated by installment plans. Now, the trend has reversed.
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With the basic interest rate at 15% per year, the revolving credit of credit cards has become a trap for those who delay payment, and many customers are over their limits, with no room for new installment purchases.
The situation is exacerbated by rising delinquency. The consumer delinquency rate in operations with free resources closed October at 6.7%, while surveys by commerce entities indicate that in November, 72.96 million Brazilians were in debt.
In this scenario, the installment plan reappears as an alternative for those expelled from traditional bank credit, allowing them to reorganize debts and still buy durable goods in fixed installments.
Casas Bahia Transforms Installment Plan into a Sales and Financial Profit Engine
At Casas Bahia, the installment plan was once synonymous with growth. In the late 1990s, after the stabilization of the currency, it accounted for 70% of the chain’s revenue, before being outsourced to banks.
With the recent turnaround, the in-house financing rose from about 10% of physical store sales in 2020 to around 30% currently.
According to company executives, “in-house financing is an extremely profitable tool” because it enables sales that would not happen with just credit cards, which often have low or even denied limits.
The in-house credit allocation, funded by resources raised in the market, jumped from approximately R$ 200 million per month in the early 2020s to R$ 900 million.
Today, 70% of the retailer’s customer base earns up to R$ 3,000, and 40% are self-employed workers, a group that faces more challenges in proving income.
About 40% of this clientele shows some form of debt, which reduces access to credit at banks. Even so, the company grants installment plans to those with a good relationship history with the chain, reinforcing the role of financing as a competitive differential.
Magalu Bets on Digital Installment Plan to Unlock Sales in E-Commerce
Five years ago, Magazine Luiza identified a gap in the market: there were customers who couldn’t get a credit limit but were eager to buy via installments.
The financing, which had been abandoned after an agreement with a major bank, returned to the retailer’s portfolio, this time under the retailer’s exclusive control, focusing on small ticket items and shorter terms.
Today, in-house financing accounts for about 10% of the revenue from physical stores, while in digital it remains modest, between 1% and 2% of sales.
The company sees precisely in e-commerce, which accounts for 70% of total sales, the largest growth avenue for the installment plan.
The creation of an in-house financing division and a dedicated area for data and technology should expand the provision of digital installments, integrating real-time risk analysis and personalized offers in the app.
The partnership with the co-branded card issuing bank remains strong: there are millions of active cards, and much of the spending occurs outside of Magalu stores.
However, by internalizing financing, the group also starts to capture the financial margin from contracts, not just the commercial margin from product sales.
Grupo Mercado Móveis Maintains the Installment Plan as a Business Pillar
If in other chains the installment plan was outsourced and then revived, at Grupo Mercado Móveis it has never left the scene. With about 80% of the outcome coming from financial gains, the company based in Ponta Grossa, Paraná, maintains its in-house financing as a pillar of its operations in electronics and furniture.
There are 230 stores distributed across Paraná, Santa Catarina, Mato Grosso do Sul, and São Paulo, with an estimated revenue of R$ 2 billion this year.
The strategy has been to resist the trend of handing over the installment plan to banks. “We didn’t fall for the siren song of sharing our financing results,” summarizes the chain’s leadership, recalling the movements of the 1990s and 2000s when financial institutions became partners in financing major retailers.
Today, the installment plan accounts for half of the company’s revenue, and the goal is to raise this share to 60% of sales next year.
To boost this modality, the company launched aggressive campaigns, such as “Installment Plan, Win,” where customers who buy via installments with a down payment plus 17 installments receive another product worth the amount of one installment.
In towns with fewer than 40,000 residents, the installment plan is treated as an asset: many consumers keep their paid-off installment plans as proof of creditworthiness for seeking credit at other stores.
Installment Plan Goes Digital and Also Attracts Higher-Income Families
While electronics chains reinforce the traditional installment plan, clothing retailers rush to digitize their financing. Lojas Torra, with 91 units, plans to launch next year a fully digital installment plan, accessed via an app, with no need for paper or going to the register to issue the physical installment plan.
According to the financial products management, the digital installment plan aligns with the strategy to expand credit access through in-house financial operations.
The chain already has 1.7 million active customers with private cards, accounting for more than 30% of sales.
The idea is for the digital installment plan to complement the card, offering differentiated terms, the first installment due in 60 days, and specific campaigns on dates such as Mother’s Day, Father’s Day, and Christmas.
Although the installment plan is still associated with lower-income households due to greater flexibility in granting credit compared to banks, recent retail figures show another trend: families earning over 10 minimum wages have increased their share of debts via installments throughout the year, while this modality’s weight has decreased for those earning less.
Economists interpret that this higher-income bracket is swapping the expensive credit from cards for more predictable installments.
The math helps explain this trend. In October, credit card interest rates were nearly 15 times higher than the average rate of the installment plan.
And you, with the current interest rates, do you intend to return to installments for your purchases, or do you still trust credit cards more?
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